Ratings on Globe Telecom Inc. Raised to 'BB'; Outlook Stable
SINGAPORE (Standard & Poor's) Nov. 26, 2001--Standard &
Poor's today raised its long-term corporate credit and senior
unsecured debt ratings on Philippine cellular operator Globe Telecom Inc.
to double-'B' from double-'B'–minus. The outlook is
stable.
The ratings on Globe reflect its continued strong operations and
improving financial performance, following the recently completed
acquisition of cellular operator, Isla Communications Co. Inc. (Islacom).
These positive factors, however, are moderated by price sensitivity in the
domestic cellular market, and its aggressive capital expenditures.
Globe's operating performance was impressive in the third
quarter of 2001; consolidated operating revenues and net income rose
year-on-year 81% and 220%, respectively. Also, its total cellular
subscriber base almost doubled to four million, largely as result of a
surge in prepaid subscribers. Credit protection measures also improved;
total debt to capital fell to 50% on Sept. 30, 2001 from 58% in fiscal
year 2000, and annualized funds from operations to total debt jumped to
37% from 26%.
The post-acquisition consolidated entity should strengthen its
competitive position in the Philippines by increasing bandwidth capacity
for future subscriber growth, and by realizing economies of scale in
network build-out, and other cost savings. Globe's three major
shareholders--Ayala Corp., Singapore Telecommunications Ltd.
(AA-/Stable/A-1+), and Deutsche Telekom AG (A-/Negative/A-2)--injected
US$103.2 million into Islacom in May 2001, before the merger, and a
further US$52 million will be transferred before year-end.
The domestic cellular market has become a duopoly in the past year,
between Philippine Long Distance Telephone Co. (BB-/Developing/--) and
Globe. Another player, Digital Telecommunications Philippines Inc., is
expected to begin operations in 2002, and this might increase the
industry's competitive environment in the medium term.
Globe's financial profile remains aggressive. It expects to
spend US$2.3 billion in 2001-2005, 90% or more of which will be spent on
the wireless sector. The company will spend more than one-third of the
total (about US$843 million) in 2001. As part of this financing need to be
raised externally, weak global conditions might make these funding
requirements difficult to achieve. Globe's credit quality is likely
to be maintained in the medium term, however.
Globe remains susceptible to the volatility of the Philippine pesos.
About 38% of Globe's loans are effectively denominated in pesos,
including swaps. Although hard currency debt makes up almost one-half of
the total, Globe's hard currency revenues accounted for only 22% of
total net revenues in the first nine months of 2001. As of Sept. 30, the
company has total capitalized foreign exchange losses of PHP5.8 billion
since August 1997 (or 16% of equity as of third quarter 2001), of which
only PHP823 million has been recognized in Globe's profit and loss
account.
OUTLOOK: STABLE
Continued market growth and a further improvement in operating performance
are expected to underpin Globe's credit quality, and should provide
an adequate cushion for debt service in the near-to-medium term.
| Credit Analyst: |
Yasmin Wirjawan, Singapore (65) 239-6302 Agnes Lee, Hong Kong (852) 2533-3512 |
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